SINGAPORE (June 20): DBS is maintaining its “buy” call on CapitaLand Mall Trust (CMT) with a higher target price of $2.17 on attractive valuations.
CMT’s share price has lagged behind both S-REIT index and Singapore 10-year government bonds which is down by 30bps to 2.08% since the start of the year.
In a Tuesday report, analyst Derek Tan says: “We believe the underperformance is due to investors’ concerns on potential downside earnings risk given the weak operating outlook but we believe these risks are priced in at current levels.”
While the street remains divided on the stock given the uncertainties of the impact from surging new retail supply over 2017-2019, Tan says the new supplies may not be as threatening to CMT.
Tan estimates that only less than 50% of incoming new supply are relevant competition to CMT’s properties. And the major new supply is concentrated in 2018 and will likely have different target shoppers than CMT’s portfolio.
For instance, while Paya Lebar Quarter attracts the office crowd, Bedok Mall is meant more as a night and weekend family mall. On the other hand, Changi Jewel is likely to cater to tourists versus the neighbourhood for Tampines Mall.
“Our DPU estimates are conservative and we believe that the new CEO could bring in fresh blood from expertise in managing retail malls in China, a more dynamic market,” says Tan.
Meanwhile, there could also be upside from valuations in the upcoming results.
The recent transaction of Jurong Point at 4.2% cap rate is a significant milestone in Singapore and Tan believes this to have a positive impact on CMT’s portfolio valuations in the upcoming results.
Acquisitions, if any, could also present as earnings surprise for the stock.
Units of CMT are trading 1 cent higher at $1.97 on Tuesday.
